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Adversity Meets Opportunity

The story of how contingency planning led to the most profitable month in an agency’s history—during lockdown.
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Recently, one of our top carriers reached out to see if we needed any help dealing with the COVID-19 crisis. When my response was met with a sense of stunned silence, it was probably because during April 2020—in the middle of an economic lockdown—not every agency was reporting its best sales month in its history.

It was hard for us to believe, as well. But we wrote over 300 new homeowners policies, representing over $68,000 in new business commissions in one month. For an agency our size, this represented a remarkable achievement, as well as a validation of the strategic plan we implemented just over one year ago.

Our agency has operated with a formal strategic planning process for many years. We’ve been included in the Big “I” Best Practices Study several times, most recently in 2019, and our customer-focused operational policies have also earned us a five-star accreditation from the Massachusetts Association of Insurance Agents.

We credit our success to the annual development of a sound strategic plan, which takes place at the end of each fiscal year. The process typically leads to modest changes in our operations or marketing activities, with the goal of increasing efficiencies and expanding opportunities. During our most recent planning meetings in November 2019, however, we concluded that we needed a true paradigm change.

We had built a small book of middle market accounts through a well-executed process of relationship selling. Theoretically, this is the preferred way to write new business, but in practice, middle market accounts are understandably attracted to premium savings—and with only a few middle-market carriers, we began to struggle with sales and retention in this segment.

Our select customer book used to make up 20% of commission revenue, and we keep very strong carrier relationships in this segment. We found it increasingly difficult, however, to recruit and retain producers who could profitably validate their book in this segment. We operate in a standard metropolitan statistical area between Providence and Boston. Large national and global brokers operate in our backyard, so we compete for talent with the very best.

During the planning process, evaluation of our “critical success factors” kept bringing us back to our personal lines book, which made up 65% of our agency commissions—almost triple the average segment percentage for other Best Practices agencies reporting between $2.5 million to $5 million in commissions per year.

We developed this book through a series of nine acquisitions over a 15-year period. The growth strategy worked very well during that time but became less and less effective as larger, better capitalized competitors began chasing the same opportunities. Our market also has several bank-owned insurance agencies aggressively using the same growth strategy.

However, we spotted an intriguing trend. One of our producers had been building a virtual network of referral sources within the housing industry. Through social media, email campaigning and a careful balance of participation in local civic organizations, he built a personal lines marketing program that was yielding noticeable results.

The housing industry is a huge economic engine in every state but can be severely impacted by outside economic forces. By including key players from the mortgage-lending industry in this program, he demonstrated that referrals would continue through down markets if we could get an opportunity to quote business during refinance transactions. Refinancing activity ramps up as interest rates decline, a common result of central bank responses to recessionary economic conditions.

What followed was a thorough profitability analysis of our three revenue segments and a business plan that demonstrated a way to dramatically increase the organic growth and profitability of our personal lines book with smaller but still significant improvements in the select-customer segment as well.

Overall, agency profitability improved substantially under this model. However, we never expected that a global pandemic would serve to validate the merit of our plan.

To achieve the results set out in our plan, we needed to make large operational changes. We were operating with three locations and handling all account management activities in house. When studying the effect that office consolidation might have on customer service—and ultimately, retention—we found that the number of clients physically visiting any of our locations was surprisingly small. Moreover, most of the visits were inefficient for both the agency and the client.

While we certainly saw value in meeting with a client who needed to review a difficult claim, we were not doing anyone a favor by accepting monthly premium payments or having endorsement requests signed in person. When viewed together with the success we were having in obtaining personal lines commissions via digital sales activity, the concept of a digital client interface and sales model, optimizing digital communication and information services, came into clear focus.

One unforeseen development in the implementation of the plan was a sweeping change in dress code. As client visits declined and sales evolved into a truly digital transaction, staff began “dressing down” more often. While we look back at this now with a smile, it was a very disruptive situation at the time.

Our employee handbook had an outdated dress-code, which included “ties for men” and prohibited denim. One of our agency principals was adamant that “jeans and t-shirts would never be worn in the office.” Fortunately, cooler heads prevailed. Our producers always dress appropriately when attending corporate functions and networking events, and when visitors are expected in our conference room we always dress to their expectations. But on any given workday, the office has plenty of jeans and t-shirts in sight, and the handbook has been updated accordingly.

Between November 2018 and January 2020, we consolidated three offices into one. Our new single office location is noticeably devoid of customer-facing design. All client interaction is intended to be handled without physical interaction. Our automation servers were moved to the cloud to allow upgraded processing and server capabilities. Our three largest personal lines books were moved to carrier-based service centers, allowing us to transition staff from account manager to sales associates. And we added two full-time producers who quickly adopted and refined the successful housing industry sales model our producer had developed.

We also studied the interaction between the various parties in a home sale or refinance and listened as they described the problems they found when dealing with insurance providers. We worked closely with our carriers to develop streamlined quoting and binding capabilities. Together with the Boston Software and Vertafore rating platforms, we created digital proposals that co-promoted our network partners and our agency. Internal procedures were redesigned to allow requests for quotes and proof of insurance from network partners to be processed immediately.

These changes allowed us to meet the needs of our housing industry network partners in a manner that they describe as “unlike anything they were getting from other agencies.” By using this advanced quoting and binding processing system, our personal lines sales increased from an average $6,000 new business commissions per month to an average of $45,000 new business commissions per month, which is an increase of 650%!

When the COVID-19 crisis hit, we had the procedures in place to confidently serve clients while never needing to physically meet with them. Electronic signatures, digital sales proposals, expanded email and voicemail capabilities were all in place even before they became necessary. Before the pandemic, our plan called for three key employees, who had significantly increased commute times to our new office, to work remotely. As the crisis hit, we capably expanded the remote office model to every employee and had 25 staff working remotely the next day without any disruption.

Most importantly, new business revenues have comfortably overcome any business lost during the crisis. Our housing industry network includes realtors, mortgage lenders, closing attorneys and other ancillary service providers. With the all-time low interest rates moving even lower after the onset of the crisis, slowing home sales have been offset by increased refinancing activity.

Our middle-market clients are relatively diverse, including construction, light manufacturing, and wholesale distribution businesses. Unfortunately, all of them have been adversely affected to some degree by the mandatory closure of businesses and restrictions on transportation. The select customer segment, which includes a number of restaurant and food services clients, has been similarly affected. We’ve already seen endorsement requests with significant revenue reduction ramifications for us. We also forecast year-end premium audit returns that will negatively impact commission revenues.

That is not so true with the personal lines segment, however. While we are carefully watching for unusual payment-related problems with cancellations, our carrier partners have been proactive in providing expanded terms and cancellation forbearance. With this ongoing sales and refinance activity, we have been busier than ever and couldn’t believe the numbers when April drew to a close. Our partners in the housing industry network report a very strong pipeline of sales and refinancing activity, with no signs of abating.

The move from three physical offices to one, combined with a refocus of sales and marketing activity to a virtual platform and concentration of revenues to the personal lines segment was a true paradigm change for the agency. We never expected that it would be tested within the first 18 months of execution by a clientele that could not visit our office, employees that needed to work from home and sales numbers that were negatively correlated with national economic activity.

We recently revisited the strategic plan to see what other external threats we may have missed during our SWOT (strengths, weaknesses, opportunities and threats) analysis. A few things that may have previously been dismissed as unlikely outliers now seemed more possible given the current global pandemic. The strategic planning committee agreed we would need to make further changes. We all had a laugh when someone recommended that “pandemic” be moved from threat to opportunity.

Bill Lapointe is president of The Lapointe Insurance Agency in Fall River, Massachusetts.

15306
Thursday, July 2, 2020
Agency Operations & Best Practices